The Federal Bureau of Investigation (FBI) is the principal investigative arm of the United States Department of Justice, and has jurisdiction over violations of more than 200 categories of federal crimes. Its five priority programs are counterterrorism, drugs/organized crime, foreign counterintelligence, violent crimes and financial crimes. The FBI maintains 56 field offices, approximately 400 resident agencies, 4 specialized field installations, and 32 foreign posts. The FBI received $2.9 billion in direct appropriations for FY 1998 and $2.8 billion for FY 1997.

This audit report contains the Annual Financial Statement of the FBI for the fiscal year ended September 30, 1998. The audit was performed by KPMG LLP, and resulted in an unqualified opinion. An unqualified opinion means that the financial statements present fairly, in all material respects, the financial position, and results of operating activity for an entity. The FBI received a qualified opinion on its financial statements for FY 1997 (OIG Report 98-17).

By earning an unqualified opinion, FBI management demonstrated its ability to respond to the increasing federal financial reporting requirements. However, there are areas that, although not affecting the opinion, still warrant management's attention. These reportable conditions are as follows:

Concerns exist over the FBI's ability to prepare financial statements timely, and the amount of responsibility concentrated in a few key individuals;

The FBI's evidence management control system is not adequate for financial statement reporting purposes; and

Weaknesses continue to exist in the general control environment of the FBI's information systems.

The FBI noted as part of "Management's Overview," that it is fully committed to ensuring all of its mission critical, as well as non-mission critical, systems are Year 2000 compliant. The Office of the Inspector General is unable to provide any assurance as to whether all mission critical systems will be compliant or that the FBI is at minimal risk.

For FY 1998, new reporting formats required by Office of Management and Budget Bulletin No. 97-01, Form and Content of Agency Financial Statements, were implemented. The FBI prepared a Statement of Financial Position and a Statement of Operations and Changes in Net Position for FY 1997. This year, the FBI prepared a Balance Sheet, Statement of Net Cost, Statement of Changes in Net Position, Statement of Budgetary Resources, and a Statement of Financing. Accordingly, comparative financial statements are not presented or required this year.